Though XM and Sirius have offered to accept price controls and issued equipment guarantees to customers, the prospects for approval of the proposed merger between the two companies remain unclear.
“The regulatory hurdles make completion of the deal far from certain,” said Jonathan Jacoby, an analyst with Banc of America Securities, in a note to investors last week.
D.C.-based XM and New York-based Sirius announced their intent to merge last month, a deal that will require approval from the Federal Communications Commission and the Department of Justice.
One issue likely to be a major concern for regulators, Jacoby said, is the ability of the new satellite radio company to raise prices on its customers.
The combined firm would consider accepting government-imposed price controls to gain merger approval, Sirius CEO Mel Karmazin, told a House committee last week.
Karmazin, who will lead the new company if a merger is approved, appeared before the House Judiciary Committee’s new antitrust task force Wednesday to argue in favor of the merger. His offer was met with questions and skepticism from lawmakers who consider a merged company a monopoly. New York-based Sirius and D.C.-based XM have maintained that their venture would not be a monopoly because it would still experience competition from conventional radio and other sources.
Both companies also kicked off a marketing campaign last week to try to ease concerns among subscribers about what a merger will mean for their service and radios.
They each released a guarantee that no radio owned by a customer will become obsolete as a result of the merger, and XM set up a Web site and e-mail alert system to keep customers updated on the proceeds.
Meanwhile, Sirius is facing a different sort of headache. One of its radio distributors, U.S. Electronics Inc., is seeking $48 million in damages for an alleged breach of contract, according to the annual report filed by Sirius with the U.S. Securities and Exchange Commission.
U.S. Electronics asserts Sirius owes the company money, interfered with its relationship with retailers and manufacturers, and withheld information when its FM modulator devices were being investigated by the FCC for exceeding emissions standards.
“We are vigorously defending this action,” Sirius said in the report.
